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Second Mortgages – a Useful Option for Oakville Homeowners

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Second Mortgages Are a Way to Raise Cash

 
Second mortgages on Oakville homes can be a very useful financial tool in certain situations. The typical Canadian homeowner takes out a first mortgage on a home at the time of purchase; a ‘second’ comes later, as its name suggests.
 
A second mortgage is a good way to raise a lump sum of capital, using the equity in your home as security. There are many times in a homeowner’s life when this might be necessary – an emergency expense, home renovations, purchasing another property, or children’s education costs are good examples. Additionally, by using the home’s equity, it can be a way of consolidating debt or easing a cash flow crisis caused by mortgage or tax arrears.
 
In general, the rate of interest charged on a second mortgage is less than that of credit cards and personal loans. Again, this is because there is a fixed asset involved – the equity available in the home.
 
Unlike in the States, mortgage payments are not tax deductible, although there are tax strategies that can work around this. For example, if your home is used for your business; a portion of your mortgage payments can then be deducted as an expense.
 
Another big advantage of taking out a second mortgage is that rates are currently at historic lows and the interest you are paying on your heftier first mortgage is probably pegged at a very reasonable rate. A second mortgage will leave that "alone”.
 

HELOC - Another Option

 
There are drawbacks to the second mortgage. Because it ranks lower in priority than the first, it will be pegged at a higher rate of interest. It has to be paid and, if payments are in default, a house can be foreclosed upon. Your debt load is increased and there is always the possibility of a crash in house prices leaving the mortgage debt on your home greater than its actual value.
 
A Home Equity Line of Credit or HELOC is another option. It is used as a way to raise money for a purpose other than purchasing a home and it is convenient if that need for cash is stretched out over time. For example, a HELOC is useful if a child has tuition payments over a number of years. Ongoing home renovation is another situation favouring a HELOC.
 
The interest rate on a HELOC is adjustable, because it does in fact take place over time. It can be paid off, and then reopened.
 

Refinancing Your Mortgage – A Third Option

 
Refinancing your home may involve renegotiating the terms of your first mortgage – again, a consideration in a time when many first mortgages have been negotiated at low rates. You can refinance your mortgage at up to 85% of the available equity in your home; this increase would be added to your first mortgage.
 
You can find a mortgage broker by going online – or through the membership list of the professional association, Canadian Association of Accredited Mortgage Professionals (CAAMP). Ask your financial services provider which of the solutions – HELOC, a second mortgage in Oakville, or refinancing– is the best choice for your situation.

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